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Figure: Market Failure
-(Figure: Market Failure) Look at the figure Market Failure. Suppose the supply curve represents the marginal cost of providing streetlights in a neighborhood that is composed of two people, Ann and Joe. The demand curve represents the marginal benefit that Ann receives from the streetlights. Suppose that Joe's marginal benefit from the streetlights is a constant amount equal to AC. Providing F streetlights is _____ because the marginal social benefit is _____ the marginal cost.
A) efficient; equal to
B) efficient; greater than
C) inefficient; greater than
D) inefficient; less than

Question

Use the following to answer questions:
Figure: Market Failure 
-(Figure: Market Failure) Look at the figure Market Failure. Suppose the supply curve represents the marginal cost of providing streetlights in a neighborhood that is composed of two people, Ann and Joe. The demand curve represents the marginal benefit that Ann receives from the streetlights. Suppose that Joe's marginal benefit from the streetlights is a constant amount equal to AC. Providing F streetlights is _____ because the marginal social benefit is _____ the marginal cost.
A) efficient; equal to 
B) efficient; greater than 
C) inefficient; greater than 
D) inefficient; less than

Quizplus · Accepted Answer

Providing F streetlights is inefficient because the marginal social benefit, which includes both Ann's and Joe's benefits, is greater than the marginal cost.

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